Jul 5, 2013

RBI guidelines on ‘Control of Indian Companies’ in FDI policy

On Thursday, Reserve Bank of India (RBI) released guidelines on total foreign investment in Indian companies, transfer of ownership or control of Indian companies. With the ongoing debate over control of Jet Airways after UAE’s Etihad bought stake, RBI’s new FDI guidelines will certainly solve the dispute.

The guidelines are regarding Indirect or Direct Foreign Investment (FDI), calculating the total foreign investment, transfer of ownership or control of Indian companies and also on downstream investment by Indian company. Here are a few from those -

Ownership or Control – An Indian company will be an Indian company if 50 or more percentage of capital benefits is owned by Indian residents or companies. And the Indian residents or companies should have the power to appoint majority of the company directors.

Non-resident entity/ies can have control over an Indian company, if more than 50% of the capital benefits are owned by non-resident entity/ies and they’ve the power to appoint majority of the directors.

As per the press notification - Indian companies with such investments between February 13, 2009 and the date of publication of FEMA notification, should intimate the same to RBI within 90 days of the publication of this circular. They should report it to the Regional RBI office under whose jurisdiction the Registered Office of the company is located.

Calculating total FDI would sum up all the non-resident investments made in Indian company. Total foreign investment will be the sum of total direct and indirect foreign investment made in a company.